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The Anglo-Persian Oil Company
(APOC) was founded in 1908 following the discovery
of a large oil field in
Masjed Soleiman, Iran. It was the first company using the oil reserves of the
Middle East. APOC
was renamed Anglo-Iranian Oil Company
(AIOC) in 1935 and eventually became the British
Petroleum Company (BP) in 1954, as one root of the BP Company today.

The
D'Arcy Oil Concession

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Exploration and
discovery

In 1901 William Knox D'Arcy, a millionaire
London socialite, negotiated
an oil concession with the ShahMozzafar
al-Din Shah Qajar of Persia. He assumed
exclusive rights to prospect for oil for 60 years in a vast tract
of territory including most of Iran. In exchange the Shah received
£20,000, an equal amount in shares of D'Arcy's company, and a
promise of 16% of future profits.[1]

D'Arcy hired geologist George Bernard Reynolds to do the
prospecting in the Iranian desert. Conditions were extremely harsh:
"small pox raged, bandits and warlords ruled, water was all but
unavailable, and temperatures often soared past 50°C".[2] After
several years of prospecting, D'Arcy's fortune dwindled away and he
was forced to sell most of his rights to a Glasgow-based syndicate,
the Burmah Oil
Company."

By 1908 having sunk more than £500,000 into their Persian
venture and found no oil, D'Arcy and Burmah decided to abandon
exploration in Iran. In early May 1908 they sent Reynolds a
telegram telling him that they had run out of money and ordering
him to "cease work, dismiss the staff, dismantle anything worth the
cost of transporting to the coast for re-shipment, and come home."
Reynolds delayed following these orders and in a stroke of luck,
struck oil shortly after on May 26, 1908.[3]

Creation of
APOC

Volume production of Persian oil products eventually started in 1913 from
a refinery built at Abadan, for its first 50 years the largest
oil refinery in the world (see Abadan Refinery). In 1913, shortly
before World War I, APOC managers negotiated with a new customer,
the middle-aged Winston Churchill, who was then First
Lord of the Admiralty. At Churchill's suggestion, and in exchange
for secure oil supplies for its ships, the British government
injected new capital into the company and, in doing so, acquired a
controlling interest in APOC. The British government became de
facto hidden power behind the oil company.[5]

During this period, Iranian popular opposition to the D'Arcy oil
concession and royalty terms whereby Iran only received 16 percent
of net profits was widespread. Since industrial development and
planning, as well as other fundamental reforms were predicated on
oil revenues, the government's lack of control over the oil
industry served to accentuate the Iranian Government's misgivings
regarding the manner in which APOC conducted its affairs in Iran.
Such a pervasive atmosphere of dissatisfaction seemed to suggest
that a radical revision of the concession terms would be possible.
Moreover, owing to the introduction of reforms that improved fiscal
order in Iran, APOC's past practice of cutting off advances in oil
royalties when its demands were not met had lost much of its
sting.

Renegotiating of terms by
Iran

The attempt to revise the terms of the oil concession on a more
favourable basis for Iran led to protracted negotiations that took
place in Tehran, Lausanne, London and Paris between Abdolhossein Teymourtash,
Iran's Minister of Court 1925-32 and its nominal Minister of
Foreign Affairs, and the Chairman of APOC, John Cadman, spanned
1928-32. The overarching argument for revisiting the terms of the
D'Arcy Agreement on the Iranian side was that its national wealth
was being squandered by a concession that was granted in 1901 by a
previous non-constitutional government forced to agree to
inequitable terms under duress. In order to buttress his position
in talks with the British, Teymourtash retained the expertise of
French and Swiss oil experts.

Iran demanded a revision of the terms whereby Iran would be
granted 25% of APOC's total shares. To counter British objections,
Teymourtash would state that "if this had been a new concession,
the Persian Government would have insisted not on 25 percent but on
a 50-50 basis. Teymourtash also asked for a minimum guaranteed
interest of 12.5% on dividends from the shares of the company, plus
2s per ton of oil produced. In addition, he specified that the
company was to reduce the existing area of the concession. The
intent behind reducing the area of the concession was to push APOC
operations to the southwest of the country so as to make it
possible for Iran to approach and lure non-British oil companies to
develop oilfields on more generous terms in areas not part of
APOC's area of concession.

Apart from demanding a more equitable share of the profits of
the Company, an issue that did not escape Teymourtash's attention
was that that the flow of transactions between APOC and its various
subsidiaries deprived Iran of gaining an accurate and reliable
appreciation of APOC's full profits. As such, he demanded that the
company register itself in Tehran as well as London, and the
exclusive rights of transportation of the oil be cancelled. In fact
in the midst of the negotiations in 1930, the Iranian National
Consultative Assembly approved a bill whereby APOC was required
to pay a 4 percent tax on its prospective profits earned in
Iran.

In the face of British prevarication, Iran decided to
demonstrate Iranian misgivings by upping the ante. Apart from
encouraging the press to draft editorials criticizing the terms of
the D'Arcy concession, a delegation consisting of Reza Shah and other
political notables and journalists was dispatched to the vicinity
of the oilfields to inaugurate a newly constructed road, with
instructions that they refrain from visiting the oil installation
in an explicit show of protest.

In 1931, Teymourtash who was travelling to Europe to enroll
Crown Prince Mohammed Reza
Pahlavi at a Swiss boarding school, decided to use the occasion
to attempt to conclude the negotiations. According to Cadman,
Teymourtash worked feverishly and diligently to resolve all
outstanding issues, and succeeded in securing an agreement in
principle:

He came to London, he wined and he dined and he spent day and
night in negotiating. Many interviews took place. He married his
daughter, he put his boy to school [Harrow], he met the Secretary
of State for Foreign Affairs, a change took place in our
government, and in the midst of all this maze of activities we
reached a tentative agreement on the principles to be included in
the new document, leaving certain figures and the lump sum to be
settled at a later date.

However, while Teymourtash likely believed that after four years
of exhaustive and detailed discussions, he had succeeded in
navigating the negotiations on the road to a conclusive end; the
latest negotiations in London were to prove nothing more than a cul
de sac.

Matters came to a head in 1931, when the combined effects of
overabundant oil supplies on the global markets and the economic
destabilization of the Depression, led to fluctuations which
drastically reduced annual payments accruing to Iran to a fifth of
what it had received in the previous year. In that year APOC
informed the Iranian government that its royalties for the year
would amount to a mere £366,782 while in the same period the
company's income taxes paid to the British Government amounted to
approximately £1,000,000. Furthermore, while the company's profits
declined 36 percent for the year, the revenues paid to the Iranian
government pursuant to the company's accounting practices decreased
by 76 percent. Such a precipitous drop in royalties appeared to
confirm suspicions of bad faith, and Teymourtash indicated that the
parties would have to revisit negotiations.

However, Reza Shah was soon to assert his authority by
dramatically inserting himself into the negotiations. The Monarch
attended a meeting of the Council of Ministers in November 1932,
and after publicly rebuking Teymourtash for his failure to secure
an agreement, dictated a letter to cabinet cancelling the D'Arcy
Agreement. The Iranian Government notified APOC that it would cease
further negotiations and demanded cancellation of the D'Arcy
concession. Rejecting the cancellation, the British government
espoused the claim on behalf of APOC and brought the dispute before
the Permanent Court of International Justice at the Hague,
asserting that it regarded itself "as entitled to take all such
measures as the situation may demand for the Company's protection."
At this point, Hassan Taqizadeh, the new Iranian Minister
entrusted with the task of assuming responsibility for the oil
dossier, was to intimate to the British the cancellation was simply
meant to expedite negotiations and that it would constitute
political suicide for Iran to withdraw from negotiations.

After the dispute between the two countries was taken up at the
Hague, the Czech Foreign Minister who was appointed mediator put
the matter into abeyance to allow the contending parties to attempt
to resolve the dispute. Ironically, Reza Shah who had stood firm in demanding the
abolishment of the D'Arcy concession, suddenly acquiesced to
British demands, much to the chagrin and disappointment of his
Cabinet. A new agreement with the Anglo-Persian Oil Company was
agreed to after Cadman visited Iran in April 1933 and was granted a
private audience with the Shah. A new agreement was ratified by the
National Consultative Assembly on May 28, 1933 and received Royal
assent the following day.

1933
agreement

The terms of the new agreement provided for a new 60-year
concession. The Agreement reduced the area under APOC control to
100,000 square miles, required annual payments in lieu of Iranian
income tax, as well as guaranteeing a minimum annual payment of
£750,000 to the Iranian government. These provisions, while
appearing favourable, are widely agreed to have represented a
squandered opportunity for the Iranian government. The agreement
extended the life of the D'Arcy concession by an additional 32
years, negligently allowed APOC to select the best 100,000 square
miles, the minimum guaranteed royalty was far too modest, and in a
fit of carelessness the company's operations were exempted from
import or customs duties. Finally, Iran surrendered its right to
annul the agreement, and settled on a complex and tediously
elaborate arbitration process to settle any disagreements that
would arise.

The Anglo-Persian Oil Company continued its large Persian
operations although it changed its name to the AIOC in 1935. By
1950 Abadan had become the world's largest refinery. In spite of
diversification the AIOC still relied heavily on its Iranian oil
fields for three-quarters of its supplies, and controlled all oil
in Iran.

Nationalization and coup

Iranian
unhappiness

By 1951 Iranian support for nationalization of the AIOC was
intense. Grievances included the small fraction of revenues Iran
received. In 1947, for example, AIOC reported after-tax profits of
£40 million ($112 million) - and gave Iran just £7 million.[6]

Conditions for Iranian oil workers and their families were very
bad. The director of Iran's Petroleum Institute wrote that

Wages were 50 cents a day. There was no vacation pay, no sick
leave, no disability compensation. The workers lived in a shanty
town called Kaghazabad, or Paper City, without running water or
electricity, ... In winter the earth flooded and became a flat,
perspiring lake. The mud in town was knee-deep, and ... when the
rains subsided, clouds of nipping, small-winged flies rose from the
stagnant water to fill the nostrils .... Summer was worse. ... The
heat was torrid ... sticky and unrelenting - while the wind and
sandstorms shipped off the desert hot as a blower. The dwellings of
Kaghazabad, cobbled from rusted oil drums hammered flat, turned
into sweltering ovens. ... In every crevice hung the foul,
sulfurous stench of burning oil .... in Kaghazad there was nothing
- not a tea shop, not a bath, not a single tree. The tiled
reflecting pool and shaded central square that were part of every
Iranian town, ... were missing here. The unpaved alleyways were
emporiums for rats.[7]

Under the 1933 agreement with Reza Shah, AIOC had promised to
give laborers better pay and more chance for advancement, build
schools, hospitals, roads and telephone system. It had not done
so.[6]

In May 1949 Britain had offered a "Supplemental oil agreement"
which guaranteed royalty payments would not drop below £4 million,
reduced the area in which it would be allowed to drill, and
promised more Iranians would be trained for administrative
positions." The agreement, however, gave Iran no "greater voice in
company's management" or right to audit the company books. When the
Iranian Prime Minister tried to dicker with AIOC head Sir William
Fraser. Fraser "dismissed him" and flew back to UK.[8]

In late December 1950 word reached Tehran that the
American-owned Arabian
American Oil Company had agreed to share profits with Saudis on
a 50-50 basis. The UK Foreign Office rejected the idea of any
similar agreement for AIOC.[9]

By now expressions of Iranian anger against lack of support for
nationalization included a distinct lack of mourning following the
assassination of anti-nationalization prime minister Haj Ali
Razmara,[10] and a
raucous walkout of protest by newspaper reporters when a visiting
American diplomat urged 'reason as well as enthusiasm' to deal with
the British embargo of Iran.[11]

Nationalization

In March 1951, the Iranian parliament (the Majlis) voted to
nationalise the Anglo-Iranian Oil Company (AIOC) and its holdings,
and shortly thereafter elected a widely respected statesman and
champion of nationalization, Mohammed
Mossadegh, Prime Minister.[12] This
led to the Abadan
Crisis where foreign countries refused to take Iranian oil and
the Abadan refinery was closed. AIOC withdrew from Iran and
increased output of its other reserves in the Persian Gulf.

Mossadeq broke off negotiations with AIOC in July 1951 when the
AIOC threatened to pull its employees out of Iran and warned tanker
owners that "the receipts from the Iranian government would not be
accepted on the world market."[13] The
British ratcheted up the pressure on the Iranian government and
explored the possibility of an invasion to occupy the oil area. US
President Harry
S. Truman and US ambassador to Iran Henry F. Grady opposed intervention in
Iran but needed Britain's support for the Korean War. Efforts by the U.S. through the
International Court of
Justice were made to settle the dispute, but a 50/50
profit-sharing arrangement, with recognition of nationalization,
was rejected by both the British government and Prime Minister
Mossadegh.

As the months went on, the crisis became acute. By mid-1952, an
attempt by the Shah to replace Mossadegh backfired and led to riots
nationwide; Mossadegh returned with even greater power. At the same
time however, his coalition was "fraying," as Britain’s boycott of
Iranian oil eliminated a major source of government revenue, and
made Iranians "poorer and unhappier by the day."[14]

Coup

By 1953 both the US and the UK both had new, more anti-communist
and more interventionist administrations. The United States no
longer opposed intervention in Iran. Britain was unable to subvert
Mossadegh as its embassy and officials had been evicted from Iran
in October 1952, but successfully appealed in the U.S. to
anti-communist sentiments, depicting both Mossadegh and Iran as
unstable and likely to fall to communism in their weakened state.
If Iran fell, the "enormous assets" of "Iranian oil production and
reserves" would fall into Communist control, as would "in short
order the other areas of the Middle East".[15] In
August the American CIA with the help of bribes to politicians,
soldiers, mobs, and newspapers, and contacts/information from the
British embassy and secret service, organized a coup. The shah
issued an edict removing Mosaddeq from power and General Fazlollah
Zahedi, lead tanks to Mosaddeq's residence overthrowing him
from office.

Consortium

With the new pro-Western Prime Minister, Fazlollah Zahedi,
Iranian oil began flowing again and the Anglo-Iranian Oil Company,
which later changed its name to British Petroleum, tried to return
to its old position. However "public opinion was so opposed that
the new government could not permit it." Instead an international
consortium under the nationalized name (National Iranian Oil
Company) was created, the Anglo-Iranian Oil Company being just
one member and holding 40% of the shares. The consortium agreed to
share profits on a 50-50 basis with Iran, "but not to open its
books to Iranian auditors or to allow Iranians onto its board of
directors."[16]

Subsidiary
companies

Scottish Oils
Ltd

Scottish Oils Ltd (owned by Anglo-Persian) was a producer of shale oil. It was formed
between 1918 and 1920 by the merger of five smaller Scottish oil shale companies: Youngs, Broxburn, Pumpherston, Oakbank and Philpstoun.[17][18][19] Shale
oil production in Scotland
ceased in the early 1960s but there was an unsuccessful attempt to
revive it in 1973.[20] The
company still exists[21] but
is no longer in the shale oil business.

Tanker
fleet

The British Tanker Company Limited
(BTC) was formed in 1915, after the Anglo-Persian Oil Company
decided to become a fully self-contained operation, directly owning
a fleet of tankers for
sea transport. On formation, the BTC had an initial budget of
$144,000 with which to build seven steam-powered tankers. The
Company’s first tanker was the British Emperor, which was launched
in 1916. The names of the first seven ships, and all later
additions to the fleet, bore the prefix ‘British’. Over the next
decade, the demand for oil grew throughout the developed world, and
the BTC expanded accordingly. By 1924, the fleet numbered 60 ships,
with the 60th being the flagship, 10,762 deadweight tonnes (dwt),
British Aviator. She was the BTC’s first diesel engine oil tanker,
and at that time was the most powerful single-screw motor ship in
the world.

The economic depression of the early 1930s saw rising
unemployment amongst merchant navies around the world. However, the
BTC undertook a series of strategic mergers, and coupled with the
continued support of the Shah of Iran, the APOC succeeded in
strengthening its position within the industry. In 1939, the
British government chartered the whole fleet of 93 tankers to
supply fuel to its armed forces during the Second World War. The fleet lost a total
of 42 ships sunk during the war.

Within a year of peace in 1945, the BTC fleet had returned to
its pre-war total of 93 vessels. The recovery continued with the
building of 57 new tankers, each 12,000 dwt, which increased the
tonnage of oil transported from Abadan refinery in Iran, whilst
remaining light enough for the tankers to pass through the shallow
waters of the Suez Canal.

In 1951, however, the situation changed dramatically, when the
Iranian oil industry was nationalised, and the APOC removed all its
staff from Iran.